1. In compliance with the requisition of the High Court under section 66(2) of the Indian Income-tax Act, in Civil Petition No. 138 of 1959 dated 27th November, 1961, we state an agreed case and refer it to the High Court. The question of law on which the Tribunal has been directed to state the case is as follow :
'Whether, on the facts and in the circumstances of the case, the assessee firm is not entitled to registration under section 26A of the Income-tax Act?'
2. We shall, therefore, confine ourselves, as far as possible, to the facts relevant to that question.
3. The assessee is a firm of three partner : (i) Rajulbandi Venkaiah, (ii) Rajulbandi Hanumanthiah and (iii) Rajulbandi Arlaiah, carrying on business at Manvi. For the assessment year 1951-52, accounting year for which ended November 9, 1950, it filed an application under section 26A of the Act on February 25, 1953, for the registration of the firm, the return of income having been made before on October 11, 1952. The assessments for the two years 1375F. and 1358F. under the Hyderabad Income-tax Act had been completed in the status of an unregistered firm. Also an assessment for 1950-51 had been completed under the Indian Income-tax Act subsequently, in the same status. The deed on which registration was claimed was date December 27, 1950, and filed on January 19, 1951. The Income-tax Officer, however, stated in his order under section 26A 'The deed of partnership alleged to have been entered into between the three partners but without containing the date on which the said instrument of partnership was drafted had been filed on January 19, 1950'. A copy of this deed is annexure 'A' and forms part of case. The deed presented for registration stated that the three partners had been carrying on business as partners since 1350F. under the name and style of 'Rajulbandi Venkaiah Ramiah, Commission Agents, Manvi'. It also specified the ratio in which the profits and losses were to be shared.
4. The Income-tax Officer discovered in the course of the assessment for the relevant year that the assessee had not disclosed certain other busineses : (i) the wholesale Kirana shop under the name and style of 'Rajulbandi Arlappa Ramiah', (ii) a retail Kirana shop under the name and style of 'Rajulbandi Eranna Satyanarayana Setty' and (iii) a shop under the name and style of 'Kistiah Gopala Setty' dealing in tyres, tubes and automobile and cycle spare parts and stationery. In addition, the income from all these busineses was returned as that of the assessee firm in a revised return. The assessee also agreed to have the busineses of all the four treated as that of the one firm. At that stage, it filed a new partnership deed stated to have been drafted on the 25th of February, 1953.
5. The Income-tax Officer refused registration on the ground : (i) that the firm which seeks to have itself registered has not come into existence on the basis of a proper deed of partnership; (ii) there was contradiction between the first and second parts of clause 12 of the partnership deed as regards apportionment of profits and (iii) that the facts of the case showed that there was no genuine partnership.
6. The assessee appealed to the Appellate Assistant Commissioner who hel :
'According to the petitioners' own admission the original deed of partnership filed on January 19, 1951, did not reflect the true position of the firm. The new partnership deed presented for registration was drafted long after the close of the relevant accounting period. There is no agreement to prove that the busineses activities of the firm embraced all the activities specified in the new deed of partnership. Taking all the facts into consideration, I find that registration cannot be accorded to the partnership on the basis of the deed presented.'
7. Being aggrieved with this, the assessee appealed to the Tribunal and contend :
(i) that the fact that the deed of partnership was entered into after the end of the year of account, would not justify the rejection of the application, so long as genuineness of the firm had not been questioned;
(ii) that it will be wrong to state that the partnership deed filed on January 19, 1951, did not represented the true state of affairs;
(iii) that it was perfectly open for the partnership to engage in other activities and that what all the law required was that the profits in these activities should be divided between the partners in their profit-sharing ratios;
(iv) that the three additional activities indulged in but not mentioned in the deed of partnership were merely branches or off-shoots of the main busineses and so, there was no justification for holding that the deed offered for registration did not indicate the true position.
8. The Tribunal wrote :
'This firm is shown to have been trading in four different lines or activities, whereas the instrument of partnership that was filed related only to one of those activities. In a written statement, it was categorically admitted by the assessee that, although the firm was engaged also in the other three activities, the instrument of partnership did not embrace those activities. That being so, the assessed profits of the firm, which accrued to it from four different activities, cannot be said to have been divided among the partners in accordance with the instrument of partnership, which, as already stated, contemplates only one activity. It may be mentioned that the assessee firm, later, had a fresh instrument of partnership executed in which all its four busineses activities were mentioned and it was on the basis of that fresh deed that registration for a subsequent year was asked. In our opinion, the refusal to register was amply justified.'
K.S. Hegde, J.
9. The deed of the partnership dated 27th December, 1950, is marked as annexure 'A' to the statement of case. Clause (2) of that deed say :
'The busineses of partnership consists of a busineses in all kinds of grains, oil seeds and other articles generally traded by general merchants and commission agents. Apart from the commission busineses the concern may undertake any kind of busineses for which all the three partners agree.'
10. Clause (4) say :
'The net profits and net losses of the partnership busineses after charging all the expenses usual and incidental to the busineses shall be shared or borne by all the partners in the ratio mentioned below :
(1) Rajulbandi Venkaiah 0-5-4
(2) Rajulbandi Arlaiah 0-5-4
(3) Rajulbandi Hanumanthiah 0-5-4.'
11. It is not the case of the department of that the partnership put forward is not a genuine transaction. The deed in question specifies the individual shares of the partners. It is signed by the partners (they are all majors). It is also not denied that the deed of partnership produced conforms to the requirements of rules 2 and 3 of the Rules framed. Rule 4 say :
'(1) If, on receipt of the application referred to in rule 3, the Income-tax Officer is satisfied that there is or was a firm in existence constituted as shown in the instrument of partnership and that the application has been properly made, he shall enter in writing at the foot of the instrument or certified copy, as the case may be, a certificate in the following form, name :
'This instrument of partnership/certified copy of an instrument of partnership, has this day been registered with me, the Income-tax Officer for... in the State of... under section 26A of the Indian Income-tax Act, 1922, and this certificate of registration shall have effect for the assessment for the year ending on the 31st day of March, 19....' (2) If the Income-tax Officer is not so satisfied, he shall pass an order in writing refusing to recognise the instrument of partnership, or the certified copy thereof, and furnish a copy of such order to the applicants.
(3) The certificate referred to in paragraph (i) above shall be signed by the Income-tax Officer, who shall thereupon return to the applicants the instrument of partnership or the certified copy thereof, as the case may be, and shall retain the copy or the duplicate copy thereof.'
12. It is not the case of the department that the assessee has not complied either with the requirements of section 26A or with the requirements of rules 1 to 4 of the rules framed. All that is said is that the partnership deed does not include all the partnership busineses. No provision of law was brought to our notice giving the department authority to refuse registration of partnership on that ground. If it is the case of the department that the partnership deed relates only to the busineses mentioned therein, then all that the Income-tax Officer should have done is to register that partnership deed in respect of the busineses mentioned in it and treat the other busineses as that of an unregistered firm. If, on the other hand, the Income-tax Officer's conclusion was that the partnership deed covers all the four busineses mentioned in the statement of the case, then he had to register the partnership deed produced and treat it as a deed relating to all the busineses. In either case he could not have refused to register the deed in question.
13. The learned counsel for the revenue contended that we should confine the operation of the partnership deed only to the busineses mentioned therein having the department free to assess the other busineses of an unregistered firm. We cannot enter into that sphere. It is for the department to decide its own course. All that we could do is to answer the reference. Our answer to the question is that, on the facts and circumstances of the case, the assessee firm is entitled to registration under section 26A of the Income-tax Act, 1922. By giving this answer it is not implied that the registration in question covers all the busineses mentioned in the statement of the case. Nor does it imply that it covers only one of the four busineses mentioned earlier. The department to pay costs of the assessee. Advocate's fee Rs. 250.